Illegality

Ecila Henderson v Dorset Healthcare University NHS Foundation Trust [2020] UKSC 43 and Stoffel & Co v Grondona [2020] UKSC 42.  In each the Supreme Court examined the effect of Patel v Mirza [2016] UKSC 42; [2017] UKSC 467.

Ecila Henderson v Dorset Healthcare University NHS Foundation Trust was heard on 11-12 May 2020 by a 7-Justice Supreme Court (given that it was being asked to depart from an earlier decision of the House of Lords pursuant to the House of Lords’ 1966 Practice Statement  (Judicial Precedent) [1966] 1 WLR 1234).  There is a single judgment, that of Lord Hamblen, with whom the other members of the Court agreed.

On 25 August 2010, the Appellant, who had previously been diagnosed as suffering from paranoid schizophrenia or schizoaffective disorder, stabbed her mother to death whilst experiencing a serious psychotic episode. It was common ground between the parties that this would not have happened but for the Respondent’s breaches of duty in failing to respond in an appropriate way to the Appellant’s deteriorating mental health at the time. The Appellant pleaded guilty to manslaughter by reason of diminished responsibility and had been subject to a hospital order under section 37 of the Mental Health Act 1983 and detention pursuant to section 41 of the same Act ever since. She claimed damages caused by her killing of her mother under six heads: (i) damages for the depressive disorder and post-traumatic stress disorder; (ii) damages for loss of liberty; (iii) loss of amenity; (iv) £61,944 being the share in her mother’s estate which she did not inherit due to operation of the Forfeiture Act 1982; (v) cost of psychotherapy; (vi) cost of a care manager/support worker.  Her claim for those heads of loss was dismissed by Mr Justice Jay, and the Appellant’s appeal to the Court of Appeal was dismissed.

The appeal raised the question of whether Gray v Thames Trains Ltd [2009] UKHL 33 could be distinguished, and, if not, whether it should be departed from, in particular in light of Patel v Mirza.

In looking at Gray, Lord Hamblen observed that the relevant policy in connection with the ‘narrow claim’ (for damages which were the result of the sentence imposed on Mr Gray, such as general damages for detention) was the need to avoid inconsistency so as to maintain the integrity of the legal system, ‘the consistency principle’; the relevant policy in relation to the ‘wider claim’ (for damages which were the result of the killing, such as an indemnity against any claim by the dependants of the deceased) was ‘the public confidence principle’, whereby allowing a claimant to be compensated for the consequences of his own criminal conduct risks bringing the law into disrepute and diminishes respect for it; the public confidence principle was also applicable to the narrow claim; and on analysis the consistency principle also applies to the wide claim.

The Court looked at the question of the width of the application of Patel and how it applied in relation to existing case law.  Firstly, it must be remembered that Patel was about common law illegality, not statutory or contractual illegality. Secondly, although Patel concerned a claim in unjust enrichment, it was intended to provide guidance across civil law more generally.  Thirdly, that does not mean that Patel represents year zero so that in all future illegality cases only Patel is to be considered and applied: that would be to disregard the value of precedent in various areas to address particular situations where the illegality defence arises: those decisions remain of precedential value unless it can be can be shown that they are not compatible with the approach in Patel in the sense that they cannot stand with its reasoning or were wrongly decided in its light. In Robinson v His Highness Sheikh Khalid Bin Saqr Al-Qasimi [2021] EWCA Civ 862 the Court of Appeal re-stated the correct test for common law illegality as a defence to claims for unfair dismissal, taking into account the ‘not year zero’ passage at paragraph 77 of Henderson.

Looking at the issues for determination:

1. Gray could not be distinguished, even assuming that the claimant there bore a significant degree of responsibility for his crime – it involved the same offence, the same sentence and the reasoning of the majority applied regardless of the degree of personal responsibility for the offending. Clunis v Camden & Islington HA [1998] QB 978 stood or fell with Gray.
2. The essential reasoning in Gray was consistent with the Patel The Court in Gray had examined whether the narrow and the wider rules were a special rule of public policy. The Court in Patel had correctly seen Gray as being an example of an illegality decision based on policy considerations, rather than reliance. Further, the fundamental policy consideration in Gray was the need for consistency so as to maintain the integrity of the legal system, the very matter held in Patel to be the underlying policy question.
3. Gray applied even where the claimant bore no significant responsibility for her criminal act: the claimant was nonetheless criminally responsible for the intentional criminal act. There would be a contradiction if the criminal under the criminal law became the victim under tort law. There may be some exceptional cases where a criminal act will not constitute turpitude, trivial offences may be an example, or strict liability offences where the claimant is not privy to the facts making his act unlawful, but the serious criminal offence of manslaughter by reason of diminished responsibility did not come close to falling within such an exception.
4. The Court provides an important explanation of the Patel Consideration of the relevant policy considerations should not give rise to a mini trial. Looking at the trio of considerations set out by Lord Toulson at para 120 of Patel, stage (a) (the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim) should not be interpreted as being confined to the specific purpose of the prohibition transgressed, and other general policy considerations impacting on the consistency of the law and integrity of the legal system also fall to be taken into account. Stage (b) (any other relevant public policy on which the denial of the claim may have an impact) operates conversely to stage (a) to look at policy reasons which support denial of the illegality defence, whereas stage (a) is directed at policy reasons which support denial of the claim.  The rejection by the majority in Patel of reliance as the test did not mean it was irrelevant, and it would often be a relevant factor. Preventing profit from wrongdoing and preserving the integrity of the legal system should be given great weight where they were engaged. Crucially, the Court held that where the balance of policy considerations came down firmly against denial of the claim, it would not be necessary to go on to the third stage and consider proportionality.  Where it is necessary to consider proportionality, centrality of the transaction will often be a factor of particular importance.
5. Looking at stage (a) the consistency principle applied and was central and very weighty; the public confidence principle was engaged; and looking at the connection between the claim and illegality, it was very close, indeed ‘the appellant’s crime was the immediate and, on any view, an effective cause of all heads of loss claimed’, indeed applying Lord Hoffmann’s approach in Gray, it was the sole effective cause of such loss. Looking at (b) the policy reasons relied on by the appellant did not begin to outweigh those supporting denial. At stage (c) denial of the claim would not be disproportionate. Therefore applying the trio of considerations test in Patel would not lead to a different outcome. The Gray decision should be affirmed as Patel
6. It followed that none of the heads of loss were recoverable.

Henderson is also an important case on the doctrine of precedent: the judgment emphasised that it is important not to undermine the role of precedent and the certainty it promotes.  See in particular para 87: the hurdle is high and the Supreme Court will be very circumspect before accepting an invitation to invoke the 1966 Practice Statement. Circumstances in which it may be appropriate to do so include where previous decisions were generally thought to be impeding the proper development of the law or to have led to results which were unjust or contrary to public policy (citing and approving R v National Insurance Comr ex p Hudson), and even then the Court needs to be satisfied that a departure from precedent is the safe and appropriate way of remedying the injustice and developing the law (citing and approving R v Secretary of State for the Home Department ex p Khawaja).  The principles in Henderson were set out and applied in the very recent case of Secretary of State for Health and another v Servier Laboratoires Ltd and others [2021] UKSC 24 where the Supreme Court found that there was no good or sufficient reason to depart from the relatively recent House of Lords’ decision in OBG v Allan [2007] UKHL 21; 4 All ER 545.

In Stoffel & Co v Grondona, the issue was whether the Court of Appeal was correct in its application of the illegality guidelines in Patel v Mirza.

Ms Grondona had had a business connection with Mr Mitchell. She agreed with him in writing to provide her name on applications for mortgages over a number of properties in which Mr Mitchell had, or would have, an interest, including a leasehold flat in London. In July 2002 Mr Mitchell bought for £30,000 a 125-year lease of the flat from the freeholder. Shortly afterwards he borrowed a sum against the flat from BM Samuels Finance Group Plc and a charge was duly registered. In October 2002 Mr Mitchell sold the lease for £90,000 to Ms Grondona. Ms Grondona obtained an advance of £76,500 from the Birmingham Midshires building society on the basis that the monies would be used to discharge the earlier BM Samuels Finance Group Plc charge, and that a new charge should be executed in favour of Birmingham Midshires. Stoffel & Co acted for Ms Grondona, Mr Mitchell and Birmingham Midshires. The advance was made and paid to BM Samuels Finance Group Plc, but as a result of the admitted negligence of Stoffel & Co none of the relevant transactions, the transfer to Ms Grondona, the charge to Birmingham Midshires or the release of the charge to BM Samuels Finance Group Plc were ever registered. Ms Grondona subsequently defaulted on payments to Birmingham Midshires and brought proceedings against Stoffel & Co to claim for breach of duty. Stoffel & Co admitted negligence but argued that damages were not recoverable because the purpose of the transaction was to put property into Ms Grondona’s name in fraud of Birmingham Midshires. At first instance the judge ruled in Ms Grondona’s favour. Stoffel & Co appealed to the Court of Appeal, where its appeal was dismissed. Stoffel & Co appealed to the Supreme Court.

In Stoffel v Grondona there was no dispute that the approach in Patel v Mirza applied. The Appellant argued that the approach was wrongly applied and so the result should be that Ms Grondona could not recover damages for the admitted negligence. The Supreme Court unanimously dismissed the appeal. Lord Lloyd-Jones gave the judgment, with which all members of the Court agreed. The application of the Patel trio of considerations should not be a mechanistic process. Accordingly, the court will identify the policy considerations at stages (a) and (b) of the trio at a relatively general level. The court’s task is to establish whether enforcing a claim that is tainted with illegality would be inconsistent with the policies to which the law gives effect or, where the policies compete, to decide where the balance lies. The court is not required to evaluate the underlying policies themselves. In contrast, when considering proportionality at stage (c), it is likely that the court will need to look closely at the case before it. However, As in Henderson, the Supreme Court emphasised that it is not necessary for the court to consider proportionality in every case. If, after it has examined the policy considerations at stages (a) and (b), the court determines that the claim should not be barred by the illegality defence, there will be no need for it to go on to consider proportionality. This is because the claim will be allowed, so there is no risk of disproportionate harm to the claimant by refusing relief to which he or she would otherwise be entitled.  In the case of Ms Grondona’s claim there was no need to consider proportionality because considering (a) and (b), and balancing the policy considerations, it was clear that it should not be barred by the illegality defence.  However, Lord Lloyd-Jones went on to consider proportionality nonetheless, and concluded that it would not be proportionate to deny the claim because it was conceptually entirely separate from the mortgage fraud.  Enforcing her claim would not allow Ms Grondona to profit from her wrongdoing, and anyway following Patel the focus should be on the need to avoid inconsistency that is damaging to the integrity of the legal system: the question of whether she would profit from the illegality is relevant, but no longer the true focus of the court’s enquiry.

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